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Ladies and gentlemen, welcome to the TDCX Q1 2023 Results Announcement. My name is Neil and I will be coordinating your call today. [Operator Instructions]. I will now hand you over to your host, Jason Lim, Head of Investor Relations from TDCX to begin. Jason, please go ahead.
Hello, everyone, and welcome to TDCX' First Quarter 2023 Earnings Conference Call. My name is Jason Lim, the Head of Investor Relations. Allow me to introduce management on the call. We have our Executive Chairman, Founder and CEO, Mr. Laurent Junique; our CFO, Mr. Chin Tze Neng; and our EVP of Corporate Development, Mr. Edward Goh.
Before we continue, I would like to remind you that we will make forward-looking statements, which are subject to risks and uncertainties that may not be realized in the future. You should not place any reliance on any forward-looking statements.
Also, this call includes the discussion of certain non-IFRS financial measures such as adjusted EBITDA, adjusted net income and constant currency revenue growth. For a reconciliation of the non-IFRS measures to the closest IFRS measures, please refer to the Form 6-K, which is available on our website.
We have prepared a convenient translation for the translation of Singapore dollars to the U.S. dollar. This was done at a rate of USD 1 to SGD 1.327. It should not be construed as representation that any Singapore dollar amount can be converted to USD at this or any other rate.
With that, let me hand over the call to Laurent. Laurent, please?
Hello, everyone, and thank you for joining us for TDCX' first quarter 2023 results briefing. Our team delivered a resilient set of Q1 results through continued focus on operational excellence and efficiency despite challenging market conditions. We'd like to thank the entire TDCX team spanning across 16 geographies for their efforts in keeping our forward momentum going. In particular, a warm welcome to our new TDCX colleagues at our newest locations of Brazil, Vietnam and Turkey, who have done an amazing job for our clients since we started. Also want to thank our clients, many with whom we've had long-standing relationships for their continued trust in us.
Let me begin with some highlights of our performance. As a result of a great team effort, we delivered at the top end of our revenue guidance this quarter with USD 124 million representing an 8.2% year-on-year growth. The Singapore dollar has strengthened considerably against all our foreign subsidiaries' local currencies, notably across our Malaysian, Philippines, Thailand and Japan businesses.
On a constant currency basis, revenue would have grown 13.1% against the same period last year. This was driven by increased revenues across our sales and digital marketing and omnichannel CX service lines.
Earnings performance was robust as EBITDA grew 7% to $32 million, while profit for the period was up 22.5% to USD 21 million. The set of results included a net reversal equity-settled share-based payment expenses of USD 3.9 million. To recap, the targets for our Performance Share Program were set in November 2021, when the business and capital market environments were very different. The vesting criteria for the PSP program includes, among others, total shareholder return and earnings criteria. In this current market environment, some of the key performance conditions of our Performance Share Plan, not expected to be obtained, therefore, we had to reverse some previously accrued costs.
Excluding the reversals, our adjusted EBITDA declined 16.2% to USD 30 million and adjusted margins declined to 24.2% from 31.2% last year. Our CFO will provide detailed reasons for this later.
To a large extent, much of the margin compression is due to planned costs such as our geographic expansion, choosing to recruit in good time ahead of projected growth in the peak summer travel season and in keeping strong support and shared service staff ratios.
We also continue to invest in initiatives such as the Digital CX Center of Excellence and TDCX AI, our in-house consulting arm. We run our business for the long term and believe these investments are necessary. Besides these, these are productivity measures and cost levers that we can pull to bring margins back nearer to our guidance levels over the course of the year. And our CFO will share more on this later.
We continue to execute well from a business perspective. Operationally, I'm very proud that we remain at the top end of performance tables for our clients, demonstrating that TDCX continues to execute at the very highest levels.
Our client count rose by a strong 55% to 85% as of March 2023. Our growth was broad-based, and we are excited that revenue from clients outside of top 5 rose 45% year-on-year. This included clients that we added from our Hong Kong subsidiary. As a result, we improved our revenue diversification as our top 5 clients contributed 76% of this quarter's revenue, down from 83% in the same period last year.
Lastly, we want to highlight our strong returns, which reflects the underlying strength of our business. A return on equity of 19% keeps us ahead of many of our peers. Over the last 2 years, we've embarked on a strategic geographic expansion, and this has really started to contribute meaningfully. For example, Korea, Colombia, Romania all recorded revenue in Q1 2023, more than 4x what they contributed in Q1 2022.
Last year, we've added new geographies like Turkey, Vietnam and Hong Kong, which were not part of our footprint just a year ago. All in, revenue from new geographies was 10x in Q1 '23 compared to what it was in Q1 2022.
Most recently, we announced the launch of our newest campus in Sao Paulo, Brazil in support of a key gaming client. We also opened our office in Jakarta in 2023, which further bolsters TDCX' Southeast Asia network.
Indonesia is the largest Southeast Asian market with a population of 270 million with over 70% Internet penetration and a large ecosystem of international and regional tech companies. With a growing head count of over 18,400 employees globally, we are excited by our new wider geographic reach. This empowers us to serve more clients across the world.
Moving into client highlights. As mentioned earlier, we continue to grow our client count steadily. While our client count stands at 85 as of March 2023, another 6 clients have been signed up but not yet launched. We look forward to kickstarting this campaign soon. As shared earlier, our higher client count and broad-based growth have contributed to the improved revenue diversification metrics.
In terms of contribution from verticals, digital advertising and media remains our largest vertical at 51% of revenue in this quarter. The revenue contracted slightly year-on-year with a decrease in volumes from some of our clients partly offset by good growth from several other clients in this space.
Our second largest vertical was travel and hospitality at 24% of revenue. This vertical saw a strong growth of 34% year-on-year, driven by the strong rebound in cross-border travel with room for further recovery. We have started ramping up our hiring to meet the demand for the summer peak period as well as increased outbound Chinese travel in the second half.
We have always shared that TDCX' differentiator is our focus on more complex work. Now given the speed of development in tech and AI, the need for moving up the complexity ladder is all the more key strategic priority for us. And we intend to deliver this by attracting top talent, providing good training and optimizing our tools and processes.
Allow me to illustrate how we do this across our 3 lines of business. Sales and digital marketing, which represents 27% of our Q1 revenue mix, involves digital marketing experts focused on optimizing average revenue per account for SMB advertisers, campaign and life cycle management, agency management and onboarding, deep analytics, creative consulting and marketing operations on behalf of our digital advertising clients.
Our talent in this LOB are recruited from a diverse range of linguistic backgrounds with obvious higher qualifications and capabilities. On the content, trust and safety, which represents 13% of our revenue mix, it involves complex content moderation interventions that require human interpretation and nuanced knowledge of cultural and political norms. We also performed a wide range of complex trust and safety functions to ensure the authenticity and accuracy of listings for rental or sales, KYC procedures for some of our fintech clients as well as data annotation and labeling work.
Lastly, our biggest service line remains omnichannel CX, which is 59% of our Q1 revenue mix. The vast majority of these are primarily complex B2B interactions or complex B2C discussions. For example, many of our clients have multiple tiers of complexity or escalation. We typically deal with the highest tiers and serve the most demanding or highest paying customers who require a wide global approach.
Others such as escalations are time sensitive and require us to employ empathy and mediation skills to intervene. Our long-standing focus on new economy of clients has provided us with deep domain expertise and understanding of innovative verticals and client needs.
We have doubled down on our consulting strategy to add even greater value to our clients. This January, we launched our Digital CX Center of Excellence to pilot and validate new CX models to support emerging technology architecture as well as to develop practical real-world use cases.
By leveling up our consulting capabilities, we're able to showcase our domain expertise, obtain a seat at the strategic table and can, therefore, deepen our relationship with clients. I'm also happy to announce that we recently launched TDCX AI, a specialized consulting division, which leverages AI and CX applications and helps clients on their AI journey. The team is composed of 50 specialists with expertise in AI algorithms, data science and business analytics. We think these insights and tools will help clients deliver hyper-personalized customer experiences, which will allow clients to create tailored CX journeys, all targeted marketing strategies, which will, in turn, drive customer loyalty and revenue growth.
We are also investing in generative AI tools to enhance internal productivity, which will free up our employees to focus on higher-value, more rewarding and fulfilling work. There are lots of fresh and exciting opportunities presented by this generative AI wave, and we are agile and nimble enough to pivot quickly to meet new demand. We will share more about developments in TDCX AI in due time.
To sum up, with a solid presence in Asia, a globally expanding footprint, a culture aligned with new economic clients and continuous technological innovation, I believe TDCX has the right fundamentals, and we are well positioned to excel in this constantly evolving BPO market.
Before I pass my time to Mr. Chin, who will bring you through our results and guidance in greater detail, I'd like to briefly touch upon outlook. Broadly speaking, the near-term macroeconomic outlook remains uncertain. Sales cycles have lengthened, and generally speaking, clients remain hesitant to commit into more business in the near term. On the other hand, a number of our largest clients have recently reported slightly more optimistic Q1 earnings. We are cautiously optimistic that business will improve into FY 2024.
With that, let me hand over to Mr. Chin.
Thank you, Laurent. For Q1 2023, revenue rose 8.2% on a reported basis. Had the Singapore dollar remained constant against our operating subsidiaries' currencies from Q1 2022, revenue would have risen by 13.1%. Notably, the exchange rates used for the translation of some of the local functional currencies of the Malaysian ringgit, Philippine peso, Thai baht, Japanese yen and renminbi depreciated between 4% to 16% against the group's presentation currency of Singapore dollar for the 3 months ended 31st March 2023 compared to the 3 months ended 31st March 2022.
This quarter's earnings included a net reversal of the share-based payment expense of around USD 4 million, as Laurent had alluded to earlier on. This was because certain performance share plan awards are not expected to vest, reflecting the current macro and business environment. Largely as a result of this, EBITDA increased 7% to USD 32 million and net profit for the period grew 22.5% to USD 21 million.
With effect from January 1, 2023, the group has decided to include adjustments for net foreign exchange gains or losses and acquisition-related professional fees in the adjusted EBITDA, adjusted net income and adjusted EPS in addition to the adjustment for equity sector share-based payment expense or reversal that was included in prior periods.
Over the course of the previous year, we have identified such additional items as not indicative of our ongoing operating performance and that adjusting for such items renders a more meaningful understanding of the underlying performance of the business to the readers.
For like-for-like comparability, similar adjustments have been made on the adjusted EBITDA and adjusted net income for Q1 2022. While we believe that such non-IFRS financial measures provide useful information to readers, these have limitations as analytical tools, and you should not consider them in isolation or as a substitute for analysis of the financial results as reported under IFRS.
Back to the results. Adjusted EBITDA declined 16.2% to USD 30 million in Q1 2023 as margins contracted from 31.2% to 24.2% with largely higher costs incurred during the quarter. I will discuss this in further detail in a later slide.
Consequently, from the lower adjusted EBITDA, our adjusted net income declined 19.1% to USD 18 million. Earnings per share in Q1 2023 landed at USD 0.14, while adjusted EPS was USD 0.13.
Let me next provide some insights of our revenue by service verticals. Our revenue growth was led by a growth in our sales and digital marketing line of business followed by omnichannel CX services but partly offset by a decline in content, trust, and safety. Revenue from sales and digital marketing services increased by 23% to USD 33 million primarily due to the expansion of existing campaigns by our key digital advertising and media clients and volume contributions from new clients onboarded in the second half of 2022.
Omnichannel CX revenue rose 9% to USD 74 million primarily due to increased business volumes from the expansion of existing campaigns by travel and hospitality clients as well as in the gaming, FMCG and technology verticals. Content, trust and safety revenue declined 17% year-on-year to USD 16 million due to lower volume requirements by decline in the digital advertising and media vertical. The mix from the different service lines has been shared by Laurent in an earlier slide.
Next, let me provide some details on the adjusted EBITDA margin movement from 31.2% in Q1 2022 to 24.2% in Q1 2023. There are 3 broad categories. Firstly, in Q1 2022, we had the COVID-19-related government aid grants largely from Singapore that did not recur in Q1 2023 of 0.7 percentage point. Secondly, there was a 1.9 percentage point impact due to the higher nonemployee wage attributable to infrastructure cost of expanded and new capacities coupled with more business and operational traveling and recruitment costs.
Thirdly, there was a 4.5 percentage point compression relating to higher employee benefit expenses, excluding the equity sector share-based payment expense reversal. This included higher group corporate costs to cope with compliance and listing requirements obligations since becoming public listed; higher proportion of deployed resources versus billable resources, which also drove up higher campaign support and shared service resource costs.
To elaborate, we have some excess agent headcount on our payroll to cater for higher volumes in 4 months planned by some of our key clients mainly in the travel and hospitality, gaming, digital advertising and fintech sectors. We also opted to retain, train and program support resources such as quality assurance and team leaders for future business recoveries or ramp-ups.
As we roll forward this year, we are targeting 2 areas to recover some of the margin compression. Firstly, we are focusing on the impact of over-resourcing gap to be optimized by closer engagement with our clients for better projection, visibility of existing and new business volumes over the rest of the year. Secondly, part of the impact from higher overheads and nonemployee costs will be progressively reduced as we generate better economies of scale from our new geographies. These have been considered in our outlook for the year, which I will share in the next slide.
Next, let me provide an update on our full year 2023 outlook. We are reiterating our revenue growth guidance on constant currency terms at 3% to 8% for the full year 2023. We also maintained our adjusted EBITDA margin outlook of approximately 25% to 29%. This does not include investments such as our Digital CX Center of Excellence and our recently launched TDCX AI arm.
With that, let me hand over back to Laurent.
All right. Thank you, Mr. Chin. Guys, we are ready for questions.
[Operator Instructions]. We now have our first question from Varun Ahuja from Credit Suisse.
I've got quick 3, 4 questions. First, I understand, Laurent, you gave a brief comment on the discussion that you're having with clients, but it will be helpful for investors if you can provide more color how is the visibility compared to, say, suppose a quarter ago when you gave the original guidance? Is the outlook over the last 3 months or 4 months has improved since you're -- obviously, you were at the peak early in the year. So how do you see as we move ahead in 2023?
Also, I understand AI, you started to have initial movements over there. But how do you see overall impact on AI on the business per se with segments, verticals you think will be impacted most? And how does these initiatives by you kind of help you mitigate some of those headwinds that may proceed? So that's number one on overall commentary on visibility and AI.
Secondly, on margin side, Mr. Chin, I understand you gave more color on it, but it will be helpful if you can provide, going ahead, how should we think on the outlook given you're expecting an improvement. And the revenue guidance implies still a headwind in second half. So economies of scale, how do you want to achieve given the revenue may -- based on guidance may not be growing at the same rate as first quarter?
And secondly, if you can provide some colors on country-wise, I don't want a specific country, but how should -- over the countries which have been launched 2, 3 years ago, where they are in terms of your base case margin expectation? How far are they from what we should expect on a steady-state margin level? So those are the two.
Third, on the tax rate, if you can provide some color. This quarter was down. So is this a normal tax which should be assumed?
All right. Thank you, Varun. I'll take some of your questions. I'll defer some to Mr. Chin. Just touching lightly on the margin compression, and I think Mr. Chin will be giving you more details. I think a lot of the impact that you see is by design, if I may say, as we had to make decisions to adapt to the times but with the future in mind. So I think Mr. Chin will be a bit clearer here on the strategic decisions we make to keep our clients happy but also take into account the operational opportunities as well as the limitations to be the best partner to our clients but also to our employees and to our investors.
Going back to -- and then Mr. Chin will talk on this as well as the countries and the tax rate. You asked me about AI and the impact of AI on TDCX. So I think maybe it's a lot easier for me to reiterate how differentiated TDCX are and how we have anticipated this. And if you look back to our IPO paper, now a few years back, we were already discussing this topic. And we are doing much more complex work than a number of our peers. 51% of our business is in digital advertising. Close to 70% is in business to business. Not that we're immune to AI and the automation journey, but this is not something new to us. And obviously, we've been going through that process for a number of years.
And we've discussed it before, but what the impact that this has on our work is that our work is becoming increasingly complex, and that's forcing us to hire more competent personnel, provide better training for them and retention are important topics. And the way clients look at it is exactly the same way. And the pressure usually right now, we feel, is on speed to proficiency, and clients are asking us to help them to get their specialists to a higher level of competency at a higher pace and work on retention.
So hence, the launch of TDCX AI, where we are intending to respond to the increasing interest of clients in advisory services to guide them in their strategy. And we've been very successful with this recently, and we'll be continuing to press hard on TDCX AI to address the opportunity, we think, beyond the possible impact that is difficult to estimate. The opportunities are going to come with the fact that clients are all wanting to do something, but the resources are hard to come by, and that's exactly the way outsourcing works when it's hard to find resources, outsourcing as an opportunity to shine. So we intend to capitalize on this, and we've already made steps obviously towards that goal.
Now your question on the client discussions. Visibility has not improved dramatically. It's still a volatile environment both on the macroeconomic side of things. As you know, everybody is waiting to see what the Fed is going to do, whether there's going to be an impact on the economy. We've heard a lot of layoffs, especially recently. We hope that's the end of those layoffs and that clients are in a better position to make decisions. Especially coming towards the midyear, we anticipate clients will need to make decisions to make the year. So we hope those decisions will come a bit at an accelerated pace, but I cannot guarantee this.
So the discussions with clients are ongoing. They're fruitful and meaningful, but I cannot say that our visibility has increased so far. So sorry for a long-winded response. I'll hand over to Mr. Chin to maybe get a bit clearer on the margin compression as well as other details that you've asked.
Yes. Can you -- hello?
Yes, we can hear you, Mr. Chin. Maybe a bit -- yes.
So on the question on the margin, as was mentioned in the call a while ago, the cost that rose a bit more than what we had when we were newly listed in Q1 and around -- throughout the course of the -- of 2022. So I hope with the compliance and the listing since becoming listed ourselves in mid-2021, so that kind of came to a bit of a level throughout 2022 that -- coming Q1 2020, and there were some advisory work that also started in first quarter.
The second point about the margin opportunity from the deployment of resources against the billable headcount, that drove the campaign support and shared service resources. So there were some additional offsets, agent headcount on our payroll to cater for certain volumes that were planned in the 4 months by some of our key clients in gaming and strategy advertising sectors.
So in that sense, the [indiscernible] in some of the new on the new programs in the -- until a new [indiscernible] in I think as well in Vietnam and Korea as well, we have some expansion there. So in advance of the billable phase of this headcount [indiscernible] with this margin from arriving from this situation that we had.
And also, in essence, we also opted to bring as much of our trained and experienced , QAs and TLs in , future business and volume recovery and also as a new business, which we are aiming for -- on the new logos that we are quite confident to target. So on that front, going forward, I would say the -- as what you were saying, that the headwinds in the second half year will impact on our margins going forward.
We will -- we actually started to focus on the -- focus on R&D [indiscernible] demand the visibility of the volume. So we are having really close hand-in-hand engagement with our clients and working with that for better projection visibility for the existing and new for the rest of the year.
And we probably -- we are actually -- will shift off the program's volume -- I mean, the headcount by seeing what they are like and they are maybe taking a bit of risk in addressing spikes of volumes if those happen. And also the [indiscernible] and nonemployee costs, we will definitely optimize when the sale of the new business and new sector start to increase over the remaining period of the year. Yes, that pretty much connect back to what we talk about, the margin, the [indiscernible].
As for the tax part, if I probably jump to that question first, there was this in one of the business units in Europe from the tax calculation that we projection of the profitability of that -- you need as well as the -- to a certain extent, the actions of the prosperity tax that started in -- happened in Malaysia in 2022 that did not happen in 2023.
So going forward, we will probably be lending at about 20-ish percentage for subsequent quarters, subject to any other tax rules, et cetera, that is -- law that is being implemented by any [indiscernible]. Did I cover all your questions, Varun? Is there any other?
Yes. I think there is some problem with the audio, but most of it, I got it.
We now have our next question from Vitt Pang from Goldman Sachs.
A couple of questions from me. Maybe number one, going back to the revenue again. I understand that there are some headwinds that we are supposed to expect, but the constant currency basic revenue actually came in above 13% on a year-on-year versus your guidance of 5% to 8%. So particularly, can you actually highlight which quarters or in what time frame that we might actually see headwinds coming in and in the sector as well? Just wondering why do you keep a very conservative stance here as well despite seeing some of the improvement.
And number two, somewhat related to that as well. I think previously, you mentioned a part of the weak asset you are seeing because some of your digital advertisement clients see less willingness to spend overall. But given that some of these clients and the sector as well is actually seeing the results and basically numbers coming in better than expected in the first quarter, are you particularly seeing better demand indication from, let's say, the OCX sector, SDM sector from them? That's question #2.
And last question, just wanted to ask about the new location that you just launched, Brazil and Indonesia. Can we have more color since you already have client locked in for these new locations? And if so, which segment should we see uplift and when?
Super, Pang. Thank you very much for all the questions. On the headwinds part where, yes, we grew in constant currency at 13% in first quarter, which looks pretty decent and the question is why do we -- are we not upping our guidance, I think it comes back to the visibility issue and really us taking as usual and as you know, as a conservative stance as we don't want to overexaggerate the opportunities that are in front of us. The market remains -- they remain jittery, uncertainty on the macroeconomic front, and that's not to be underestimated.
Coming back to your question on digital advertising clients who have reported better quarters. It's great, but nonetheless, you can see that they are still looking for efficiencies. And sometimes, clients look at every single aspect of efficiencies, whether they are anticipating a slowdown or are they looking at improving their profitability as a trade-off to some investments they're making. We're not sure and at least we can see at this point a huge turnaround of confidence saying that the second half is going to be trading much, much stronger. So until then, we don't think we should change our guidance.
The new locations that we've launched, the most recent one, Vietnam is very busy at full capacity right now. Indonesia is a new site that we -- so we have those greenfield sites where we start with the client and some sites where we make an investment and wait to get clients as a strategic move. Indonesia is such an investment that we've made. As opposed to last year, we spent quite a bit of last year setting up sites that were really a greenfield operation, purpose built for our clients, and they started going straight away with business.
So we try to make that trade-off between strategic location expansion versus really greenfield sites for clients to further our growth and quite happy to see how the strategy of growing our new offices has paid off for us or continues to pay off by driving some growth that is starting to be quite noticeable at this point. Thank you, Pang.
Let me add [indiscernible] question that I think I omitted to answer to Varun, 1 of the 3 questions. On the new logos revenue as well as the margin -- op margin performance of those new sites that was set up by -- last 2, 3 years, basically, they are still operating at below the mature units as -- that were set up in much long ago. But on -- improve -- I mean, trading quite nicely in a sense that it is -- they are coming not so much as yet to a full [indiscernible] but they are still finding their foot on running their programs because they are still young and a lot of handholding by mature units in Malaysia, Singapore in running those programs, the [indiscernible] on a positive but yet to margins of the mature units.
And Pang, I continue as well on the new geos. If you look at Colombia, Korea, Romania, our revenue was up 4x compared to Q1 2022, so it's quite significant in terms of growth. Overall, the new geos compared to last year's same quarter actually grew 6.5x. When we execute the Hong Kong operation, it's a lot more even if we add the Hong Kong operation. So it's starting to really contribute and more to come in that front for sure.
We now have our next question from Ranjan Sharma from JPMorgan.
Just a couple of questions from my side. Firstly, coming back to the revenue guidance. If you're guiding for 3% to 8% growth on a constant currency basis, while the first quarter is at 13% growth, so should we think that the revenues might decline in the coming quarters despite the expansion in logos and then despite the expansion in geography?
The second is like how are your hiring decisions evolving with gen AI? Are you looking to hire more to build capabilities? I know you talked about efficiencies, but also would like to understand if you're looking to provide some solutions based on LLMs as well and how that's affecting your hiring decisions.
Thank you. On the revenue, we don't provide a per quarter guidance unfortunately. So as we mentioned, we're really sticking to our guidance in constant currency basis. And yes, so that's really how far I can go at this point. On the gen AI and I want to call it AI in general, if I may say, and beyond that, the consulting part of things, absolutely, we want to invest in that sector.
It's still early days, yet TDCX has been in this business for years. Now our digital lab has been building AI models for the past 8 years, leveraging machine learning. Some of our revenue comes from data annotation as well, so it's -- we're absolutely in the business, but we want to take it to the next level and invest in resources and capabilities.
We have to say right now we're quite overwhelmed in terms of the number of use cases we are working on and we are really looking for talent in that space to take it to the next level. And as we build that capability and continue to really do it at a very strategic level with our clients, there are 2 objectives: one, continue to nurture our relationship and buy that seat at the strategic table with our clients; but the second one is to look at how this can spice up our revenue and possibly our margins moving forward. But nothing to announce at this point. As we said, we just launched TDCX AI, and we'll be tracking it pretty closely in the coming months.
We now have our next question from Han Tan from HSBC.
Could I ask what your employee utilization was this quarter as last year? You, of course, been hiring much faster than top line growth, so curious how this has affected sort of staff utilization.
I don't think we report really on employee utilization at this point. But the -- I think if you mentioned that our employee count has grown faster than our revenue growth, there's a recent -- I think Mr. Chin has explained around the margin compression and the fact that this misalignment between how quickly we scale down our headcount to reflect the new revenue forecast or the new revenue that is given to us by clients and the decisions that we make to hold on to some buffers to wait for the business rebound.
So you'll see that discrepancy possibly especially in Q1, but that's typical playbook, operational playbook that we use to mitigate between operational risk and client satisfaction and the financial performance. We try to find the right balance between those 3 and get to the right flavor of the moment where you are in a situation where your growth has slowed and we have capacity chasing growth as opposed to the . So that's probably one of the main reasons that -- and I think Mr. Chin has already quite covered this topic already.
Could you also comment on sort of levels of wage inflation in your key markets? How much did that impact employee costs in the first quarter?
Mr. Chin maybe can comment on this.
Regarding [indiscernible] the wage inflation for current quarters has not been quite evident. We are making our wage decision internally to cut in cost, so we have help on that front. So far, I think we are managing it quite reasonably well. There are still movement -- market is still a bit high on that front. So far, I think the action level is still under decent control from the management. But I would say that wage adjustment is not a main factor in the current year.
Final question for me. I noticed you incurred some due diligence fee on discontinued acquisition. So I wonder whether you could give us any color on why you decided not to pursue this opportunity.
Yes. Han, Ed here. So I think you're aware, we said that we are actively pursuing and evaluating different opportunities out there, and they're all at different stages. At some point where we see the right opportunities that warrant a closer look, we would appoint professional advisers to help us conduct due diligence. And we did.
It's just, in this case, for reasons I can't disclose and which is quite difficult in M&A discussions, we decided not to pursue. So the talks was basically discontinued. I think we continue to take a very disciplined approach going forward and scan the entire landscape to look for the right fit and the right targets.
We now have our last question from KC Ong from CGS-CIMB.
Quickly on the revenue side of things. Looking at it on a Q-on-Q basis, revenue contribution from SDM up, while OCX was more flattish. Any reason for this? Because I imagine that SDM would typically be more resilient in times of -- for example digital advertising slowdown because clients are trying more collectively reach out to drive revenue growth. So how should we read into this?
No. Good question, KC. And I mean the sales and digital marketing is still more resilient. If you look at it from Q-to-Q, it looks like it's more acute in reduction. But if we look at it from Q2 last year, we've grown quite significantly on the sales and digital marketing. I think is around 25% up on the sales and digital marketing. So it's probably more of a quarter issue, but I don't want to underestimate as well the impact of macro on sales and digital marketing. As much as it's a bit more resilient, it is not immune to macro pressure, and digital advertising is obviously impacted, so we have to take that into account. But we're confident with that sector this year as one of the key drivers of our growth as well.
KC, just to expand on Laurent's question, a long answer is that Q1 this year was a shorter working period as opposed to barring any other -- all else being equal. Q4 last year was a slightly longer work month -- work quarter in that October and November was a longer period of work months and where the sale was a bit more down as opposed to Q1 period where Jan and Feb and Feb was probably the -- had quite a bit of bridge in a short market, and January was kind of a start of the year where things are a bit -- the takes a bit of time to before [indiscernible] so that's where the number of workdays deviation in the just had a little bit of effect to the new trending that you just mentioned.
Got it. So I guess just circling back to your full year guidance for revenue. Just wanted to confirm if the mix expectation internally is still the same compared to 3 months ago because I think back then guided that SDM segment growth should be stronger compared to OCX. So is that expectation still the same?
Yes. Yes.
Okay. But probably a bit more seasonality.
Yes. No. Yes, we still expect sales and digital marketing to grow faster than the rest, but for the exact mix of the business lines, we don't provide forward guidance for the mix.
Got it. And secondly, I guess, just again on M&A versus share buyback, noticed that this quarter, of course, we haven't managed to put your M&A target. But on the share buyback front, still also seems to be a bit lacking. I think the share buyback was only about USD 30,000 compared to last year at current share price levels. I think management was more proactive in share buybacks. So just wondering, yes, how should we read into this. Any more color would be helpful.
Sure, KC. I think multiple factors there in guiding us whether we activate the share buyback. I think, obviously, one is the current valuation versus peers. Number two is sort of always sensitive to sort of the float and the impact when we dip into the market. I think third is also the fact that there are regulatory sort of considerations including when we are in possession of price-sensitive information, which creates sort of restrictions on when we can go into the market. So we consider all the 3 I just mentioned before going to the market. I recognize that in the first Q, I come across as just relatively small in terms of the quantum, but going forward, I think we adopt the same sort of principle when looking at whether we can go into the market.
Thanks, KC. We've completed the calls on -- via the phone line. We have some questions online. Let me just read them out. This is from Jason Chiu to from UOB Kay Hian. Elaboration on professional fees for the acquisition, I think we've answered that. Second one, what is management's view on the macro environment affecting TDCX? Are new economy clients cutting back on their CX spending?
Yes. I think we, I think, addressed this as well but not specifically to new economy clients. But they're, again, not immune to the macro environment, and they are reacting with swift action, I would say, in terms of adapting to the scenarios that are in front of them. So no, I think new economy or not new economy, everybody is in the same boat looking at efficiencies and making some rationalization decisions or being impacted by the slowdown and having to adapt accordingly. So as a result of that, we're also not immune to the macro environment, and it's reflected in our guidance and the difference in our growth this year versus last year for sure.
Thanks, Laurent. Next question employee expense for Q1 is 64% of revenue with a historical average of around 60%. Will we taper down again? And is there any expected time line for this?
Mr. Chin or...
Yes, Mr. Chin can take out this piece.
Yes. We were able to land back a debt ratio, but I would say it's quite a moving part [indiscernible] so that's something that we are looking at a target. Probably in the near term, we will not land at those rates yet. But again, revenue productivity and the optimization are still in progress, are still worked on. So that's something we will try to attain.
Thanks, Mr. Chin. I think that's all the questions we have now both online and on the webcast as well as the phone line, so thank you for dialing in.
Sorry, I think there's one last question from Jonathan, and we probably have time to take a last question. Operator, can we have Jonathan, please?
We now have Jonathan Woo from Phillip Securities.
Just actually only have one. Could you give us some -- I guess, based on your revenue growth for this quarter, how much of it came from new geographies from the last several years, maybe just in terms of revenue growth?
Revenue growth from new geographies?
Yes, correct.
Around $8 million of revenue in Q1 was from new geographies, so around -- I think, around -- about -- just over $7 million of revenue growth is from new geographies.
Okay. I think that's it. We have answered all the questions. Please feel free to reach out to the IR team if you need anything else. Thank you for the time, and have a good day ahead.
Thank you very much. Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect your lines.